New leader

Dr Napthine, who celebrated his 61st birthday yesterday, is a member of the Legislative Assembly and represents the South-West Coast.

A former vet, he was first elected in 1988 for the country seat of Portland and served as leader of the opposition after the resignation of Jeff Kennett in 1999.

He lost the leadership by a narrow margin to Robert Doyle in 2002.

To this point in the current Government, Dr Napthine has served as the Minister for Ports, Racing, Regional Cities and Major Projects.

He said he would look to build on the foundation left by Mr Baillieu.

"This is a great honour, a great privilege and a great challenge," Dr Napthine said.

"I'm proud to be in coalition with our National Party colleagues and I look forward to providing strong, stable and positive government for the people of Victoria."

During a speech interrupted by the unexpected ringing of parliamentary division bells, Dr Napthine praised Mr Baillieu for his service to Victorians, describing him as "not just a colleague, [but a] great friend".

"I am enormously proud that I was part of the Baillieu-led Coalition team that won the 2010 election," he said.

"Ted Baillieu certainly has served the state very well. He has served the Liberal Party extraordinarily well.

'Out of control'

Victorian Opposition Leader Daniel Andrews said there had been "corridor gossip" over the past few weeks that Mr Baillieu would stand down.

Mr Andrews said Mr Baillieu had not provided any reason for his decision to quit, and it was proof the Government is "out of control".

"Former premier Baillieu has not explained, or given to the Victorian community, the reasons he has stepped down," he said.

"The premiership of the great State of Victoria is not a birthday gift.

"It ought to be earned and be the choice of the Victorian community, not a handful of Liberal members of Parliament.

"Let's hope in the days to follow we'll learn more about why this leadership change has been made.

"This is high farce and again I make the point whilst the Liberal Party may have chosen Denis Napthine, I think it's always best if the Victorian community choose their leader."

Growing crisis

Earlier on Wednesday, Mr Baillieu seemed determined to continue as leader in the face of a growing crisis over the release of secret tapes implicating his chief of staff in secret talks with a sacked government adviser.

Mr Shaw released a statement during the afternoon, saying his decision to quit the party reflected a general loss of confidence being felt by Victorians in the leadership of the Government.

A short time after Mr Shaw released his statement, the Liberals convened an emergency meeting at Spring Street.

It was then that Mr Baillieu announced to colleagues that he would step down.

Mr Baillieu led the Liberal Party since May 2006 and represents the seat of Hawthorn.

He had been premier since December 2, 2010 after defeating Labor's John Brumby in a close contest.

NSW Premier Barry O'Farrell said on Twitter that Mr Baillieu's decision was a "typically loyal and self-effacing act [from] ... a much under-rated and under-estimated leader".

Prime Minister Julia Gillard and Opposition Leader Tony Abbott both gave Mr Baillieu their best wishes.